Your accounts: Make sure you have correct beneficiaries
“A son can bear with equanimity the loss of his father, but the loss of his inheritance may drive him to despair.”
The horror stories are endless, but the main plot is nearly identical in all cases. It usually goes something like this: A newly widowed wife receives the consolation of family and friends after the death of her husband of 40 years. He had worked hard his whole life and loved his wife and children with all his heart. Her lawyer is meeting with family to finalize the distribution of his estate. He begins with the reading of his will and moves on to naming beneficiaries of his financial accounts. To the surprise of the entire family, this loving husband and father has left his entire 401k account, not to his wife and children, but to his ex-wife. You see, he had entered into a marriage right out of school that ended quickly. He had also started his new job and had listed his new wife as the beneficiary of his retirement account. When he met the love of his life, he just never gave a second thought to making sure his wife would receive the money if he were to die. Despite a bitter legal battle, the ex-wife received the funds as requested on his retirement plan documents.
The power of listing beneficiaries on financial accounts is often understated and even more often handled incorrectly. It is a very common occurrence for individuals to be unsure who is listed as beneficiaries on their accounts with no idea where the documentation is located that states the current listings. People often think of beneficiaries in the context of life insurance and IRA’s, but did you know that nearly all accounts can list beneficiaries like checking and brokerage accounts? This is one of the easiest and most overlooked areas of estate planning.
Maybe you have concerns about your estate going through probate because of the cost and risk of the entire process. You might even be looking into various trusts simply to avoid probate. What if you could avoid probate of your accounts with a single signature with no additional cost? You can… Simply list a beneficiary through a Transfer on Death (TOD) or Payable on Death (POD) designation. While there are certainly more complex situations that will benefit from the use of trusts, often a simple listing of a beneficiary will accomplish your goal of transferring your wealth without the hassle of probate.
When considering beneficiaries, there can be many tax and legal issues that must be taken into account. Listing minors will require a guardian be setup to manage the funds until they become of age and there can be tax ramifications for listing a trust as a beneficiary of certain accounts. You should always list secondary beneficiaries as well for added protection.
First, gather together all the documentation you have that lists your current beneficiaries and confirm they are correct. This may require a phone call or two to the various financial and insurance companies holding your money. Secondly, meet with your professional team that should include your attorney and CPA to be sure that your beneficiary listings are coordinated correctly with your overall plan. Finally, keep copies of your current beneficiaries along with account information in the same location as your estate documents. This will save your heirs hours of work and worry. Taking a little time to be sure this area of your estate plan is in order is a labor of love that will bless your heirs, ensure your wishes and establish your legacy.
RC Arseneau is a Certified Financial Planner and lives with his family in Delaware. Please submit any questions or topic requests to AskRc@mail.com.
The information and opinions in this column are provided only for educational and entertainment purposes. Any reference to a financial product or strategy is not to be considered an endorsement or recommendation. The information is of a general nature only and does not take into account your individual objectives, financial situation or needs. It should not be used, relied upon, or treated as a substitute for specific professional financial, legal or tax advice. Investment Performance may vary due to timing and expenses. Rc recommends that you obtain your own independent professional advice before making any decision in relation to your particular requirements or circumstances.